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Martinez Corporation earned net income of $520,350 in 2020 and had 115,000 shares of common stock...

Martinez Corporation earned net income of $520,350 in 2020 and had 115,000 shares of common stock outstanding throughout the year. Also outstanding all year was $750,000 of 9% bonds, which are convertible into 17,000 shares of common. Martinez’s tax rate is 30 percent.

Compute Martinez’s 2020 diluted earnings per share. (Round answer to 2 decimal places, e.g. 3.55.)

Diluted earnings per share $enter diluted earnings per share in dollars rounded to 2 decimal places

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Answer #1

Solution:

Interest on bonds = $750000 *9% = $67,500

Adjusted net Income = Net income + Interest on bond net of tax = $520350 + ($67500*70%) = $567,600

Diluted earnings per share = Adjusted net income / Total outstanding shares

= $567600 / (115000 +17000)

= $567600 / 132000

= $4.30

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